While on active service, military members may face financial difficulties, including unpredictable deployments and base relocations as well as spouse unemployment, which could lead to the need for borrowing money.
They may also be vulnerable to lenders who offer high-interest rates because they need credit. To protect military personnel from predatory lenders, the federal government passed the Military Lending Act.
The MLA regulates lending to help servicemen access credit and avoid financial hardship.
A brief overview of the Military Lending Act
In 2006, the Defense Department passed a law to strengthen protections for servicemen and women on active duty as well as their families.
Before the MLA was implemented, a report by the Defense Department found that predatory loans were common in the military. 17% of the military took out payday loan. The high interest rates on these short-term loans can create a debt cycle.
Jim Rice, Assistant Director of the Office of Servicemember Affairs at the Consumer Financial Protection Bureau, says that when the law went into effect there was much attention paid to the military community. The law was passed at the height of the reserve force’s call to active service, and it opened the door for predators to take advantage of this population.
The MLA has established protections that are automatic. Most notably, there is a cap of 36% on interest rates for payday loans, title loans and refund loans. This means that lenders cannot charge higher than 36% Military Annual Percentage Rate (MAPR). This rate is generally considered to be the highest possible for credit.
Other protections were also established by the MLA, such as eliminating prepayment penalty and military allotments that require creditors to demand repayments directly from servicemen’s paychecks.
What is the Military Lending Act and who does it cover?
The Military Lending Act protects the following categories:
Active duty service members.
Members of the Reserve components who have been on active duty 30 days or more.
Children, spouses and dependents covered.
Credit types covered by Military Lending Act
The Defense Department has expanded MLA in 2015 to allow for more credit types.
New legislation includes payday loans as well as credit cards, title loans for vehicles, installment loans in some cases, student loans that are repaid with tax refunds, and certain loans.
However, the MLA does not apply to every credit product. The MLA does not cover mortgages, lines of credits, and home equity loans as well as certain secured loans including secured auto loans.
Servicemembers Civil Relief Act is not the same as MLA. SCRA provides protection to active-duty service members as well, but only for debts incurred before service.
Reporting predatory lenders
The military still has concerns about predatory lending. Rice said that the CFPB had recovered $175,000,000 in monetary relief from 39 enforcement actions that involved harms to veterans and servicemen. Six enforcement actions were taken for violating the Military Lending Act.
Rice advises service members to remain vigilant. You can contact the CFPB online or over the phone at 855-411-2372 if you think a lender has violated the MLA. He says that you are not required identify yourself as a member of the military.
Other options to receive financial aid
Lacey Langford is a financial advisor and the founder of “Military Money Show”, a podcast. ”
Langford suggests that servicemen and women start by contacting military aid societies. These may exist on the military base where you are stationed, offering free loans or grants at zero interest. She says that some military aid societies have excess cash because servicemen are hesitant to ask for help. They include Army Emergency Relief Society, Navy-Marine Corps Relief Society (NMRS), Air Force Aid Society, and Coast Guard Mutual Assistance.
Langford explains, “There is often the thought that you will get into trouble if go inside and ask for assistance.” But that is not how it works. Your boss does not have to be informed if you go to the office and explain your circumstances. ”
Langford adds that aid societies offer free financial counseling. Financial counselors can assist you in analyzing your expenses and income to create a budget that will prevent future cash flow shortages.
Langford says that if there is no local military aid society, then the American Red Cross will help you to access financial support. The Hero Care Center can be accessed 24 hours per day by computer, phone or app.